Companies & Industries

Why Failures Can Be Such Success Stories

Many great business leaders have faced failure at some point in their careers. Psychology experts say they share a learnable trait called self-efficacy

To err is human. But to persevere is a feat that often separates the successful from the mediocre.

In business—as in sports, politics, and the arts—many of the greatest and most influential leaders share a history of failure. Automaker Henry Ford and animator Walt Disney both stumbled badly with early business ventures. Early in his career with General Electric (GE), Jack Welch caused an explosion that blew the roof off a building. Not long after taking Apple Computer (AAPL) public, founder Steve Jobs was ousted by the very man he recruited to lead the company.

Psychologists say it's not simply the fact that these people learned from mistakes that led to eventual success. It's also the resilience they displayed in getting past those potholes. Failure can be "informative rather than demoralizing. It tells you what you may need to do to make it," says Albert Bandura, the Stanford psychology professor who in the 1970s pioneered the social cognitive theory of self-efficacy—an inner belief in one's ability to succeed.

While self-efficacy is akin to other aspects of positive thinking such as self-confidence and self-esteem, it relates in particular to self-assurance about being able to excel at a particular task rather than to a person's overall self-image. When failure strikes, people with high self-efficacy learn from their errors and strengthen their resolve to succeed.

Observing Resilience

Over the past three decades, Bandura's concept has been applied to numerous fields as varied as education, smoking cessation, and sports coaching. And in the late 1980s, Bandura and Robert Wood of the Australian Graduate School of Management conducted a study that identified self-efficacy as a powerful influence in the performance of business executives. What's more, they found that "managerial efficacy" was an acquirable trait.

Working with students from top graduate business schools, Bandura and Wood told half of them they'd be measured on their inherent abilities to manage a simulated organization. The rest were told they'd be measured on their ability to adapt and acquire the skills necessary to succeed in the computerized simulation. The students were asked to assign tasks to a roster of personnel as efficiently as possible to meet performance goals. The researchers set these goals almost impossibly high to observe how resilient to adversity the students were.

The outcome was striking. Those who believed they were free to adapt and improve, says Bandura, "remained remarkably resilient in their managerial efficacy. They held the organization to high aspirations. Their analytical thinking was highly systematic. And they maintained high levels of organizational productivity." By contrast, the students who believed their inherent skills were being put to the test were easily rattled. Their decision-making became erratic as soon as they encountered difficulties, and they gave up on high aspirations for their organizations. "The message here is the importance of people's beliefs in their efficacy to sustain them under complex performance demands," says Bandura. Revealing, too, was the seeming fragility of managerial confidence: Just as it can be learned, it can be easily lost.

"Confidence has always been considered important among business leaders," says Edwin Locke, Dean's Professor (Emeritus) of Leadership and Motivation at University of Maryland's R.H. Smith School of Business and author of The Prime Movers: Traits of the Great Wealth Creators (AMACOM, 2000). Locke says some of the most highly self-efficacious figures in history were entrepreneurs, pointing to Frank Woolworth of Woolworth's, Ray Kroc of McDonald's (MCD), and Fred Smith of FedEx (FDX) as examples. But another trait these leaders share is optimism tempered by realism. "It's important to get good honest feedback, to keep your efficacy tied to reality," he says.

"We Can Do It Again"

While it's crucial for any chief executive to maintain a high sense of self-efficacy, most successful businesses also rely on a high sense of "organizational efficacy." That's the preliminary finding of Dr. James Bohn, a change management director with Johnson Controls (JCI) and a researcher with the University of Wisconsin at Milwaukee. Even if a company has a strategic plan, the crucial question is whether "the collective people within that organization believe they can control that outcome," Bohn says.

Bohn has found companies are better equipped to overcome failure if they enjoy three traits that bolster organizational efficacy: a strong track record, successful rivals to compare themselves with, and leaders who give positive feedback. GE, he says, should have little trouble getting past the recent storm of criticism over its failure to fulfill CEO Jeffrey Immelt's confident first-quarter predictions. "They'll come out of that very strong, as they look at their past performance and accomplishments and say, 'If we've done it in the past, we can do it again,'" Bohn says.

Everyone suffers from lapses in confidence, even Immelt's predecessor Jack Welch. In 1963, early in his GE career, Welch was leading a team that set off a violent explosion while experimenting with volatile chemicals. Though no one was seriously hurt, "My confidence was shaken almost as much as the building I had destroyed," Welch wrote in his autobiography, Jack: Straight from the Gut (Warner Business Books, 2001). But Welch's manager, rather than scold or punish him, taught him an important lesson by helping him focus on what he could learn from the incident. "When people make mistakes, the last thing they need is discipline. …The job at this point is to restore self-confidence."